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Fiscal Convergence, Business Cycle Volatility, and Growth
Author(s) -
Furceri Davide
Publication year - 2009
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/j.1467-9396.2009.00837.x
Subject(s) - business cycle , economics , volatility (finance) , convergence (economics) , fiscal policy , monetary economics , macroeconomics , government spending , panel data , econometrics , market economy , welfare
This paper analyzes the effects of fiscal convergence on business cycle volatility and growth. Using a panel of 11 EMU and 21 OECD countries and 40 years of data, we find that countries with similar government budget positions tend to have smoother business cycles. That is, fiscal convergence (in the form of persistently similar ratios of government surplus/deficit to GDP) is systematically associated with smoother business cycles. We also find evidence that reduced business cycle volatility through higher fiscal convergence stimulates growth. Our empirical results are economically and statistically significant, and robust.